ITAT Removes Penalty on Voluntary Deposit of Tax Prior to Receiving Notice: Order Dt.04.10.23

The Delhi bench of the ITAT (Income Tax Appellate Tribunal) Delhi recently made a significant ruling regarding voluntary tax deposits and their implications on penalties. In a case involving Pradip Burman, the ITAT emphasized that making a voluntary tax deposit should not be seen as an admission of guilt, especially prior to receiving a notice under Section 148 of the Income Tax Act, 1961. As a result of this ruling, the bench decided to abolish the penalty that had been imposed under Section 271(1) of the same Act.

The case pertained to the assessment year 2007-08 and focused on funds held in an HSBC account. Pradip Burman, the assessee, initiated his own investigation upon learning about information regarding his alleged deposit in an HSBC Bank account. In response to the information received by the Central Board of Direct Taxes (CBDT) concerning the taxpayer’s foreign account and income for the assessment years 2006-07 and 2007-08, Burman voluntarily offered to pay income tax.

Even before receiving the formal notice under Section 148 of the Act, Pradip Burman proactively paid taxes on the income he had offered for taxation. The amounts were substantial, totalling US$ 40,000 in the assessment year 2006-07 and US$ 32.13 lacs in the assessment year 2007-08. Importantly, during this payment, Burman explicitly stated that this act should not be perceived as an admission of guilt.

Upon careful consideration of the facts & records, the ITAT observed that the taxpayer had deposited additional tax for the relevant assessment years well in advance of the initiation of proceedings under Section 148 of the Act. This indicated that there was no potential loss of revenue. The tribunal stressed that in the realm of tax assessment procedures, a taxpayer has the right to retract from the position they voluntarily took in their return of income. Therefore, offering tax payments for the sake of resolving matters peacefully should not imply an admission of ownership of guilt.

The ITAT panel, comprising Astha Chandra (Judicial Member) and N. K. Billaiya (Accountant Member), ruled that a voluntary tax deposit should not be considered an acknowledgement of guilt before the taxpayer receives a notice under Section 148 of the Income Tax Act. The legal representation for the taxpayer was handled by M.P. Rastogi, while Vivek Vardhan represented the revenue.

This ruling sets a precedent in understanding the implications of voluntary tax payments and their relationship to penalties, providing clarity and fairness to taxpayers within the legal framework.

Case Title: Pradeep Burman Vs DCIT; Citation: ITA N0.6725/DEL/2018

To know more about penalty provisions under I-T Act CLICK HERE

To Read the Article on ” CBDT Notification No.88/2023″ CLICK HERE

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